Short On Time… Executive Summary
I apologize in advance. This one is going to be a bit longer than usual. We have some catching up to do. My family took a long overdue trip out west this year. We hit 5 states in 16 days, mostly taking a tour of some of the national parks. Glacier, Yellowstone and Tetons in particular. I’ve added a few photos at the end. One is the group we toured with. You can play Where’s Waldo to find me. Shouldn’t be that hard, we are on the far-left tail of the age bell curve on this one. We had a great time. Unless you have unlimited time to explore these places, I highly recommend a tour group. The logistics alone were just incredible. I was able to get out the 3rdquarter outlook, but had very limited time and more importantly, connectivity, to do so. Cell service and internet out there are a luxury. Perhaps, not being connected is the luxury. The lodge in Yellowstone has no internet and no televisions.
Moving on. I asked a friend once what’s been going on in their life and they replied, “everything and nothing.” Well, I can’t think of anything more apropos to describe this market. The market is really spinning its wheels since the beginning of June after the rollover and recovery from earlier in the year. I am not surprised by this, and you shouldn’t be either. Beyond the AI shuffle taking place (we’ll discuss that in a second) it is a mid-term election year. Mid-term election years tend to be the ones in the cycle that are pretty flat until the elections are in the books. I’ve posted the chart below more than once this year but think it appropriate to post once more as this time of year is where the rubber tends to meet the road.
Now, I mentioned AI earlier and it is all you hear on the news, especially the financial news. After all, it is a new frontier of transformational technology. I suspect you are going to start hearing more around regulation and at what pace we should be moving forward. Last week, an advanced version of Chat GPT broke out, stole credentials and hacked another company by itself. I think this is probably just the beginning and the horse, so to speak, is out of the barn when it comes to AI. As investors, we are interested in this because of the corporate earnings that will be generated from this superpower that is gaining steam. As humans, we should be interested in how it can enrich our lives, but at the same time being careful to not end up with the real-world version of Skynet and the Terminator. Elon Musk was interviewed by the Economist last week and made the statement that AI would have more intelligence than the human collective within the next 5 years. This means, it will be smarter than all 8 billion people on Earth combined. Pretty incredible.
The next matter of importance is the Fed. They meet this week to determine interest rate policy. The new Fed Chair, Kevin Warsh, has been talking tough on inflation. Remember, President Trump appointed him and The President would like lower interest rates. Warsh has come into a tough situation. He certainly isn’t going to be cutting rates any time soon. A lot of “experts” are calling for rate hikes this year. Anything can happen and I reserve the right to be wrong, but I will tell you why I think some of the “experts” are wrong. I don’t see a reason to raise rates. Oil is the main reason inflation has been ticking up. Oil prices fell in June and so did inflation. Oil prices, until the last 2 days, have been rising in July thus I would expect inflation in July to show an increase. When fuel costs rise it costs more to transport all the goods we use. Those costs can be absorbed by vendors for a while, but at some point, they have to pass the increase along. The charts below will show you the relationship between inflation and oil prices. They are HIGHLY correlated. Now, you’ll notice there is a bit of a lag in inflation as it turns after oil. This makes sense. This is the time that it takes for those higher transport costs to show up. The first chart shows 2024-2026 and the second shows the year-to-date. You can see the lag a little better in the second one. What does this have to do with the Fed not raising interest rates? Well, oil prices increasing automatically slow the economy. After all, the consumer doesn’t get extra pay when gas prices go up. Those higher gas prices take discretionary funds away from other areas as transportation is right up there with food and shelter. The Fed would generally raise interest rates to slow the economy. So, if it is already slowing, I don’t think they want to magnify that by increasing borrowing costs. I think we all believe the Iran situation will be worked out at some point and when it is oil prices will inevitably come back down thus bringing inflation along with it. Historically the cure for high oil prices has been high oil prices. This typically creates an oversupply situation which, in turn, ends up creating a glut. So, I would be surprised to see a hike on Wednesday.
The Week On Wall Street
Stocks ended last week down as Q2 corporate results, Middle East developments, and the chips trade took investors for a choppy ride. The Nasdaq Composite Index was under the most pressure, falling 2.13 percent. The Standard & Poor’s 500 Index lost 0.61 percent, while the Dow Jones Industrial Average slipped 0.38 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, rose 0.35 percent.
A Volatile Week
After a sluggish start on Monday, stocks rebounded on Tuesday as the chips trade led the markets higher, as investors turned their attention to Q2 corporate earnings results.
Then stocks stalled midweek as oil prices and bond yields rose and investors digested some initial Q2 reports. The S&P 500 ended just below the flatline, while the Dow went sideways and the Nasdaq posted a modest loss. Stocks opened lower Thursday as mixed corporate updates from two of the world’s largest companies soured investor sentiment. One company said it was raising its AI spending forecast for the year, which unsettled investors who believed other companies may have to do the same. Sentiment turned positive Friday morning as investors cheered quarterly results and guidance for one big tech company. But markets retreated in the afternoon as investors fretted over oil prices.
The Importance of Guidance
Last week was one of the busiest for the Q2 2026 corporate reporting season. Corporate earnings are a key driver of stock prices, so updated corporate guidance can increase market volatility. Last week, two influential companies said they intended to spend more money this year than expected, which caught investors off guard. As more Q2 corporate reports get released, expect investors to pay close attention to any spending updates for other companies.
This Week: Key Economic Data
Monday: Durable Goods.
Tuesday: Federal Open Market Committee (FOMC) meeting—Day 1. Advance Economic Indicators. Retail & Wholesale Inventories. S&P Cotality Case-Shiller Home Price Index. Consumer Confidence.
Wednesday: FOMC meeting—Day 2. Fed Interest Rate Decision.
Thursday: Gross Domestic Product (GDP), Q2. Weekly Jobless Claims. Personal Consumption Expenditures (PCE) Price Index.
Friday: Employment Cost Index. University of Michigan Consumer Survey (Final).
This Week: Companies Reporting Earnings
Promised Vacation Pictures
Stay tuned...